Being compliant under Health Care Reform, it’s complicated
As discussions with my clients shift from “if” to “when” will health reform pass, CFOs and HR managers are expectedly anxious and concerned about protocols and penalties associated with the new rules under Obamacare. For Massachusetts companies, many of the plan design and credible plan requirements were resolved way back in 1996 under small group reform or recently under the 2007 Mass Health reform law. In fact, much of what we are seeing in both the House and Senate versions of reform mirror the Mass reform program in many respects. There is however a potential catch-22 involved with the cost of having a compliant plan; that issue is the Senate pay-for “Cadillac” tax.
The Cadillac tax as its reads in the current Senate version, will tax companies that provide greater than $8,500 of “coverage” for an individual and $23,000 per family per year. It is important to note that these limits are not reduced for employee contribution and include premiums for Dental and Vision coverage. They will be indexed, but not at the rate of medical inflation. Under the reform law, every dollar over these amounts will be taxed at a very punitive 40%. Unfortunately, Massachusetts businesses pay some of the most expensive premiums in the country. Employers are required to purchase expensive plan mandates and pay for care at the most costly hospitals in the country. Recent Mass reform has also added to these premiums with costs related to new taxes and the cost shift that occurred when the individual and small groups were merged. As a recent Globe article pointed out, it is not difficult for a typical Mass plan to achieve Cadillac status. In fact, the Globe predicted that by 2016, 34% of companies in Mass will have Cadillac plans.
Employers not wanting to pay this 40% penalty will be forced to make difficult plan decisions; cancel their dental plans or increase the employee out of pocket burden. If the plan is cut too much however, or the contributions are shifted too greatly to the employee, “credible coverage” penalties kick in under the new federal reform laws. Employers will spend a great amount of time reviewing and calculating the financial effect of every benefits plan decision. I predict the term “threading the needle” will be greatly used in the months ahead.